Determining exactly when you should apply for a small business loan can be tricky, particularly for startups without prior experience running a business.
Many entrepreneurs use personal savings and credit to cover their initial costs because it can be difficult to get a business loan for a startup without a proven track record and credit history. However, relying on credit cards with high interest rates and low credit limits isn't a sustainable situation. Applying for a personal loan can help by providing more funds at a lower interest rate than a credit card, but there are significant advantages to having a business loan, so most entrepreneurs shouldn't rely on personal loans indefinitely.
The responsible use of business loans will help build financial credibility for your company, which will open doors for other opportunities that can help you grown and expand, such as higher lending limits and trade credit with vendors and suppliers, writes LendingTree.com contributor Ashley Sweren.
Figuring out how and when to transition the bulk of financing from your personal loan, credit or savings to a business loan is a process that becomes much easier when you have built a strong relationship and work closely with your financial institution. Your financial institution can look at your business plan and finances and tell you what types of loans are available to you. It may be the case that you can currently get a business loan with a favorable rate and dont have to delay. If you arent likely to qualify at the current time, your financial institution can even help you determine what steps to take to become a better candidate in the future.
It is also important to note that you shouldnt wait until you are in dire need of funding to begin your loan application. Obtaining a loan is not an instantaneous process, so waiting until a big piece of machinery breaks or you run out of inventory before starting the application could mean going without for a few weeks. And that could mean an interruption in your business operations and a loss of income.
Furthermore, waiting too long could actually have a negative impact on your application.
The truth is its easier to secure a loan or a line of credit when you dont need one rather than wait until the situation is dire, states Ami Kassar the CEO and Founder of MultiFunding.com and Guest Writer for Entrepreneur. If your business is doing well you have accounts receivable, industry growth is strong and you have good credit now is the time to consider a loan or a line of credit
Small, community-based financial institutions are historically known to be more business-friendly than big, national bank chains, so they are a great place to go to discuss this issue further. If you would like to learn more about the loan possibilities for your small business, even if you don't need a loan right now, reach out to your local bank or credit union and begin building a positive relationship that could lead to a more profitable future.